Worldwide: Antitrust & Trade Regulation Update

Last Updated: March 19 2008
Article by James Dick

United States

FTC Chairman to Step Down

Federal Trade Commission (FTC) Chairman, Deborah Platt Majoras, has announced her decision to leave the FTC in late March. Majoras was appointed by President George W. Bush and served as FTC Chairman for over four and half years. Previously, she was in private practice and also served as Principal Deputy Assistant Attorney General of the Antitrust Division of the Department of Justice (DOJ) where she was involved in the DOJ's prosecution of Microsoft. The press release announcing the Chairman's departure lauds her efforts toward, among other things, "increasing the efficiency and transparency of the merger review process, implementing sound antitrust policy regarding intellectual property, increasing efforts to prevent anticompetitive government policies, and strengthening cooperation with consumer and competition agencies around the world." It has been reported that Majoras will assume a senior position at Procter & Gamble following her departure from the FTC.

Majoras is one of several senior FTC officials to announce their departures from the agency as the Bush administration enters its final few months. Other such officials include the Director of the FTC's Bureau of Competition, Jeffrey Schmidt, and FTC Deputy General Counsel, John Graubert. Smith and Graubert will each return to private legal practice.

DOJ Approves United Health-Sierra Merger, Subject to Divestitures

The DOJ has agreed to allow the largest health insurer in the United States, UnitedHealth Group, to proceed with its planned US$2.6 billion acquisition of Sierra Health Services Inc., subject to the condition that UnitedHealth divest its Medicare Advantage policyholders and related assets in the Las Vegas area. The DOJ intervened after having determined that the transaction as planned would have harmed competition by combining the number one and two providers of Medicare Advantage health insurance in Las Vegas. According to the DOJ, the combined entity would control approximately 94 percent of the Las Vegas Medicare Advantage market which, in total, accounts for approximately US$840 million of commerce annually. The DOJ filed a complaint and consent decree on February 25, 2008 in the US District Court for the District of Columbia.

Congress created the Medicare Advantage program to provide Medicare enrollees (mostly senior citizens) the option of private insurance. Under the program, competition among private Medicare Advantage insurers offers seniors more affordable, higher quality benefits and a wider array of health care choices than traditional Medicare. By eliminating competition between UnitedHealth and Sierra, the DOJ alleged, the combined entity could increase prices and reduce the quality of Medicare Advantage plans sold in Las Vegas.

The DOJ will accept public comments on the proposed consent decree for a period of 60 days, as provided under the Tunney Act. Upon expiration of the comment period, the district court will enter a final judgment approving the consent decree if it finds that it serves the public interest.

FTC Sues Cephalon Over Settlement to Delay Generic Entry

The FTC has filed suit against Philadelphia-based pharmaceutical company Cephalon, Inc. for entering into agreements with four generic drug makers to delay entry of generic versions of its sleep disorder drug, Provigil. In its compliant filed in February in the US District Court for the District of Columbia, the FTC alleges that such agreements are anticompetitive and violate Section 5 of the FTC Act. Provigil, which accounts for more than 40 percent of Cephalon's sales over US$800 million in 2007 is prescribed to treat sleep apnea, narcolepsy and shift-work sleep disorders.

The FTC's complaint stems from conduct by Cephalon to artificially extend the duration of patents for Provigil. At the time such patents were expiring, four generic companies submitted applications to the Food and Drug Administration to produce generic versions of the drug, including Teva Pharmaceuticals USA, Inc., Ranbaxy Pharmaceuticals, Inc., Mylan Pharmaceuticals Inc. and Barr Laboratories, Inc. Cephalon delayed entry by each company, however, by filing patent litigation seeking to enforce a narrow formulation patent, which relates to the size of the particles in the drug. Subsequently, it entered agreements with each company, settling the patent litigation in return for agreements to forego generic entry until April 2012. The agreements also contained certain profit sharing payments to the generic producers totaling over US$200 million. FTC Bureau of Competition Director Jeffrey Schmidt, stated "Such conduct is at the core of what the antitrust laws proscribe."

In filing its complaint, the FTC is seeking a judgment declaring Cephalon's conduct unlawful and barring similar conduct in the future. It further seeks a permanent injunction that would allow generic entry before 2012. In response to the FTC's action, Cephalon has issued a press release stating that it believes its agreements with generic drug producers "fully comply with both the spirit and letter of the antitrust laws," and that the company is "prepared to vigorously defend itself in this matter and expects to prevail."

DRAM Defendant Prosecution Ends in Mistrial

The judge presiding over the litigation concerning price fixing of dynamic random access memory chips (DRAM) declared a mistrial in the government's case against Hynix Semiconductor Inc. sales executive Gary Swanson. Swanson was charged in October 2006 with participating in an international scheme to fix prices of DRAM between April 2001 and June 2002. After an 11-day trial and seven days of deliberations, the 12-person jury convened in the US District Court for the Northern District of California remained deadlocked.

Swanson was indicted together with alleged co-conspirators Il Ung Kim and Young Bae Rha for violations of Section 1 of the Sherman Act. Kim and Rha are each residents and citizens of Korea and served as vice president of marketing and vice president of sales and marketing, respectively, for the Memory Division of Samsung Electronics, Ltd. All three were charged with attending meetings and telephone conferences where they agreed on prices for DRAM sold to certain customers, issuing price quotations in accordance with such agreements and exchanging information about sales of DRAM for purposes of monitoring and enforcing agreed-upon prices. Kim pleaded guilty and was sentenced to serve 14 months in a US jail and pay a US$250,000 criminal penalty; Rha remains at large. Swanson, a US citizen, was senior vice president, Memory Semiconductor, Inc.

During interviews following the judge's ruling, members of the jury spoke out about the government's presentation of evidence. In particular, several jurors expressed dismay over the government's chief witness, Michael Sadler, who was an executive of co-conspirator Micron Technology Inc. Some jurors reported that Sadler lacked credibility, while others reported being angry that he was getting a free pass under the government's leniency agreement with Micron, as many believed he was a ringleader in the conspiracy.

DOJ, EU Approve Steel Mill Merger Subject to Divestitures

The DOJ and European Commission (EC) each announced agreements with London-based ceramic refractories producer Cookson Group plc that would allow its proposed US$1 billion acquisition of rival Foseco plc. Although each company is headquartered in the United Kingdom, Cookson and Foseco are two of only three producers of carbon bonded ceramics (CBCs) in North America. CBCs are used in steelmaking and foundry operations to control the flow of molten steel during continuous steel casting procedures.

On March 4, 2008 the DOJ simultaneously filed a civil complaint challenging the transaction and a proposed settlement agreement. According to the complaint, the acquisition as proposed would have eliminated competition in the US market for two types of CBCs namely, stopper rods and ladle shrouds. If approved by the US District Court for the District of Columbia, the settlement agreement will require the companies to divest Foseco's entire US CBC business including its Saybrook, Ohio plant and related assets. In addition, the DOJ must approve the buyer of the divested assets.

In Europe, Cookson agreed to divest Foseco's CBC business and its ceramic foam filters division.

The DOJ and EC cooperated throughout the investigation of the Cookson-Foseco merger, and will continue to coordinate efforts to oversee compliance with their respective settlement agreements. Assistant Attorney General in charge of the DOJ's Antitrust Division, Thomas O. Barnett, stated, "This resolution by the Antitrust Division and European Commission is an example of effective cooperation in global competition enforcement."

European Union

EC Clears Google-DoubleClick Merger

On March 11, 2008 the EC's Directorate General of Competition announced that it will not challenge the proposed acquisition of Internet advertising firm DoubleClick Inc. by Google. The decision allows the companies to consummate the transaction as the FTC and Australia's competition agency similarly cleared the deal in late 2007. (See our January 2008 Antitrust & Trade Regulation Update.)

The EC opened a formal investigation of the proposed merger in November 2007 following complaints by rivals Microsoft and Yahoo! and online advertising associations. Specifically, thedeal's detractors claimed that by controlling DoubleClick's operations Google could cut off competitors (or raise their costs) from its online ad serving products, or leverage its position in search advertising to require its customers also to purchase DoubleClick's online ad placement tools.

After analyzing the proposed transaction, the EC determined that it would not likely harm competition. The EC found that Google and DoubleClick are not now horizontal competitors, and that even if DoubleClick were capable of entering Google's market for online ad intermediation services, rivals Microsoft, Yahoo! and AOL would continue to exert competitive pressure after the merger. The EC further found that the combined entity would have little incentive to restrict rivals' access to its ad serving products, and that low switching costs and the presence of numerous other suppliers in the market for ad serving would counteract strategies to marginalize its competitors.

Google's chair and chief executive officer, Eric Schmidt, lauded the EC's decision, saying: "With DoubleClick, Google now has the leading display ad platform, which will enable us to rapidly bring to market advances in technology and infrastructure that will dramatically improve the effectiveness, measurability and performance of digital media for publishers, advertisers and agencies, while improving the relevance of advertising for users."

EC Raids CPU Manufacturers and Retailers

EC officials, accompanied by their counterparts from national competition authorities, carried out surprise inspections at the premises of Central Processing Units (CPUs) manufacturers and personal computer retailers including Intel, Metro AG, Media Markt, Saturn and DSG International. The EC suspects that the raided companies may have committed violations of the EC Treaty's provisions regarding restrictive business practices and abuse of dominance. There is no established deadline for the conclusion of the investigation; its length depends on the complexity of the case and the cooperation of the undertakings concerned.

EC Issues Statement of Objections to Alcan

On February 21, 2008 the EC sent a Statement of Objections to Alcan, a Canada-based company involved in the refining, smelting and recycling of aluminum. Alcan allegedly abused its dominant position in the market for aluminum smelting by illegally tying its market-leading aluminum smelting technology to the handling equipment manufactured by its subsidiary, ECL. The Ec estimates that as a result of this practice Alcan's customers were prevented from using handling technologies developed by ECL's competitors.

The Statement of Objections is the procedural step whereby the EC notifies a party in writing of accusations raised against them. The party is allowed to submit a written defense and to participate in an oral hearing before the EC. A final decision by the EC follows, with a possible imposition of fines.

EC Fines Microsoft for Noncompliance With Its March 2004 Decision

The EC has fined Microsoft ¬899 million for failing to comply with its decision of March 2004. Such decision required Microsoft to license its interoperability information on commercially reasonable terms to competitors developing work group server operating systems. Microsoft began selling patent licenses following the decision, but with licensing fees that the EC found were unreasonably high. Microsoft was therefore held to have violated Article 82 of the EC Treaty by charging excessive prices between the date of the decision and October 22, 2007, when the company amended its patent licensing program.

Romania Ordered to Recover Unlawful Aid From Automobile Craiova

The EC has concluded its investigation into the privatization of Automobile Craiova and determined that the government of Romania violated EC state aid rules by selling the company for less than its market price. Automobile Craiova has factories in Craiova, Romania and trades in spare automobile parts. More than 70 percent of its shares were controlled by the Romanian privatization agency, AVAS. According to the EC's findings, Romania accepted a lower sales price for the company in exchange for certain guarantees regarding future levels of production and employment. In order to counteract the resulting distortion of competition, Romania is required to recover ¬27 million from Automobile Craiova.

OFT Offers Payoffs to Whistleblowers

The UK's national competition authority, the Office for Fair Trade (OFT), has implemented a provisional policy to offer financial incentives to whistleblowers. The OFT will pay up to ₤100,000 for information related to cartels; actual amounts will be calculated according to a pre-established formula. To qualify for a reward, information provided must be accurate, verifiable and helpful for the OFT to detect illegal cartel activities. The reward policy will be implemented for a trial period of 18 months, at the end of which the OFT will decide whether to render it permanent.

Around The World

Canada Ice-Maker Targeted by US Probe

Winnipeg-based ice-maker Arctic Glacier Inc. has confirmed that it was subpoenaed by the DOJ relating to the agency's investigation of anticompetitive practices in the US market for packaged ice. The company operates 37 production facilities and 50 distribution sites throughout Canada and the United States. The DOJ has confirmed that the agency is conducting an investigation of the market, but has declined to comment on the specific conduct being investigated.

Arctic Glacier was subpoenaed on March 7, 2008, the same day that US regulators conducted raids at the Dallas offices of Reddy Ice Holdings, Inc., the nation's leading supplier of packaged ice. Reddy Ice serves more than 80,000 customers in 31 states. 7 Antitrust & Trade Regulation Update JAPAN JFTC Prosecutes Marine Hose Cartel

On February 20, 2008 the Japan Fair Trade Commission (JFTC) issued an order against Bridgestone Corporation and four non-Japan-based companies for their roles in an international price-fixing cartel in the market for marine hose. Bridgestone was ordered to pay a ¥2,380,000 fine and to cease and desist its participation in the cartel. The other companies UK-based Dunlop Oil & Marine Limited, Italy-based Manuli Rubber Industries S.p.A. and Parker ITR S.r.l., and Francebased Trelleborg Industries SAS each received cease-and-desist orders. Such companies are the first ever non-Japan-based recipients of a JFTC cease-and-desist order.

According to a recent JFTC press release, the companies investigated were found to have conspired to allocate customers and geographic markets for marine hose since 1999. Specifically, the companies agreed to allocate orders for marine hose by matching the country of origin of the order with the companies' headquarters locations. For orders originating in other countries, a Ukbased industry consulting firm acted as an intermediary by allocating customers among the marine hose producers according to predetermined market shares and other factors. The JFTC determined that such conduct amounted to an unreasonable restraint of trade of in violation of Article 2 of the Anti-Monopoly Act of Japan.

The JFTC also recognized Yokohama Rubber Co., Ltd.'s involvement in the marine hose conspiracy, but refrained from issuing is a surcharge payment order or cease-and-desist order because Yokohama Rubber had voluntarily come forward with information about the cartel.

SOUTH KOREA KFTC to Investigate International Cartels

South Korea's Fair Trade Commission (KFTC) announced that it will open a new enforcement division dedicated to investigating and prosecuting international cartels. The measure, part of a larger reorganization of the competition agency, is intended to respond to the growing number of international cartels affecting South Korea and to improve cooperation with antitrust regulators in the United States, European Union and Japan. In addition to changes within the KFTC, Korea has taken other measures recently to enhance the agency's enforcement of the antitrust laws. Such measures include amending the agency's whistleblower amnesty program so that cartel heads are ineligible for full immunity from prosecution and raising the amnesty program's reduction in fines for second-in cartel members from 30 percent to 50 percent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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